Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded

of a good or service to a change in its price. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price. Point-price elasticity One way to avoid the accuracy problem described above is to minimize the difference between the starting and ending prices and quantities. This is the approach taken in the definition of point-price elasticity, which uses differential calculus to calculate the elasticity for an infinitesimal change in price and quantity at any given point on the demand curve:

In other words, it is equal to the absolute value of the first derivative of quantity with respect to price (dQd/dP) multiplied by the point's price (P) divided by its quantity (Qd). In terms of partial-differential calculus, point-price elasticity of demand can be defined as follows: let be the demand of goods as a function of parameters price and wealth, and let be the demand for good . The elasticity of demand for good with respect to price is

However, the point-price elasticity can be computed only if the formula for the demand function, , is known so its derivative with respect to price, , can be determined.

Arc elasticity A second solution to the asymmetry problem of having a PED dependent on which of the two given points on a demand curve is chosen as the "original" point and which as the "new" one is to compute the percentage change in P and Q relative to the average of the two prices and the average of the two quantities, rather than just the change relative to one point or the other. Loosely speaking, this gives an "average" elasticity for the section of the actual demand curvei.e., the arc of the curvebetween the two points. As a result, this measure is known as the arc elasticity, in this case with respect to the price of the good. The arc elasticity is defined mathematically as:[13][17][18]

Determinants The overriding factor in determining PED is the willingness and ability of consumers after a price change to postpone immediate consumption decisions concerning the good and to search for substitutes ("wait and look").[24] A number of factors can thus affect the elasticity of demand for a good:[25]

Availability of substitute goods: the more and closer the substitutes available, the higher the elasticity is likely to be, as people can easily switch from one good to another if an even minor price change is made. There is a strong substitution effect. If no close substitutes are available, the substitution effect will be small and the demand inelastic.[28] Breadth of definition of a good: the broader the definition of a good (or service), the lower the elasticity. For example, Company X's fish and chips would tend to have a relatively high elasticity of demand if a significant number of substitutes are available, whereas food in general would have an extremely low elasticity of demand because no substitutes exist.[29]

Percentage of income: the higher the percentage of the consumer's income that the product's price represents, the higher the elasticity tends to be, as people will pay more attention when purchasing the good because of its cost; The income effect is substantial. When the goods represent only a negligible portion of the budget the income effect will be insignificant and demand inelastic, Necessity: the more necessary a good is, the lower the elasticity, as people will attempt to buy it no matter the price, such as the case of insulin for those that need it. Duration: for most goods, the longer a price change holds, the higher the elasticity is likely to be, as more and more consumers find they have the time and inclination to search for substitutes. When fuel prices increase suddenly, for instance, consumers may still fill up their empty tanks in the short run, but when prices remain high over several years, more consumers will reduce their demand for fuel by switching to carpooling or public transportation, investing in vehicles with greater fuel economy or taking other measures. This does not hold for consumer durables such as the cars themselves, however; eventually, it may become necessary for consumers to replace their present cars, so one would expect demand to be less elastic.[26] Brand loyalty: an attachment to a certain brandeither out of tradition or because of proprietary barrierscan override sensitivity to price changes, resulting in more inelastic demand. Who pays: where the purchaser does not directly pay for the good they consume, such as with corporate expense accounts, demand is likely to be more inelastic.

In economics, income elasticity of demand measures the responsiveness of the demand for a good to a change in the income of the people demanding the good. It is calculated as the ratio of the percentage change in demand to the percentage change in income. For example, if, in response to a 10% increase in income, the demand for a

good increased by 20%, the income elasticity of demand would be 20%/10% = 2. The income elasticity of a superior good is above one by definition, because it raises the expenditure share as income rises. A superior good also may be a luxury good that is not purchased at all below a certain level of income. Examples would include smoked salmon and caviar,[1] and most other delicacies. On the other hand, superior goods may have a wide quality distribution, such as wine and holidays; however, though the number of such goods consumed may stay constant even with rising wealth, the level of spending will go up, to secure a better experience. In economics, normal goods are any goods for which demand increases when income increases, and falls when income decreases but price remains constant, i.e. with a positive income elasticity of demand. The term does not necessarily refer to the quality of the good, but an abnormal good would clearly not be in demand, except for possibly lower socioeconomic groups. In particular, when the price of a normal good is zero, the demand is infinite. In economics, an inferior good is a good that decreases in demand when consumer income rises, unlike normal goods, for which the opposite is observed.[1] Normal goods are those for which consumers' demand increases when their income increases. [2] This would be the opposite of a superior good, one that is often associated with wealth and the wealthy, whereas an inferior good is often associated with lower socioeconomic groups.